Why our cable bills are getting so expensive

Blame it on the sports fans

Have you ever opened up your cable bill and said, “Man, was it always this expensive?”

It is not an illusion — cable bills are actually increasing rapidly. From 2001 to 2011, the average cable bill has almost doubled from $40 to $78. The challenge for the consumer is that it’s an all or nothing deal — you either have cable or you don’t. Whether you solely watch Mad Men, or are a bonafide couch potato, watching every reality show possible; everyone pays the same thing. Clearly, some people are getting their money’s worth more than others. It doesn’t take much digging to realize that the real winners are the sports fans.

To understand this, let’s break down your average cable bill. The common misconception is that your cable company is responsible for raising your bill. Look, I hate Comcast just as much as the next guy, however, price increases generally come from the TV networks. If Fox News raises their price, the cable provider cannot all of a sudden stop carrying it. Customers would not only complain but also immediately look to other providers for service. Instead, they eat the price increase and eventually pass it on to the consumer. This is what leads to our exploding cable bills.

When a cable company decides to carry a channel like Comedy Central, they must pay the TV network a subscription fee for every one of their customers. Subscription fees are important because they show us how expensive one channel is relative to another. The fees vary greatly based on the demand of the channel. For example, The History Channel costs roughly 22 cents/month. ESPN you might be wondering? That comes out to $5.13/month, making it by far the most expensive cable channel out there. To understand how sports dominates the TV programming you pay for, consider this:

The most expensive, non-sports channel is the The Disney Channel. It has a subscriber fee of $1.00. Not surprisingly, Disney, which owns the The Disney Channel, also owns ESPN. That is not a coincidence. Disney bundles their channels together so if a cable company wants to carry ESPN, they have to also take The Disney Channel.

Five of the 10 most expensive channels are either sports channels or carry major sports on their network. To be fair, sports hold their own in the TV ratings. Around half of the top 25 highest rated TV shows last week were related to sporting events. However, the top spot went to Walking Dead on AMC, which charges a subscriber fee of 27 cents/month. Not all sports channels are performing well — a regional network in Houston showing Astros games recently scored a 0.0 TV rating.

The TV industry can demand a premium on sports content because viewers must watch it live. Over 99% of sports content is watched live compared to 75% of TV dramas or 70% of TV comedies. The audience watching sporting events also falls into a key demographic for advertisers that cannot be found elsewhere — young men. The combination of a live audience plus attractive demographics gives incredible leverage to the leagues and teams when negotiating TV contracts.

The TV networks have responded by engaging in a land grab for sports content. Here are some of the most absurd examples:

The new NFL deal signed in 2011 is worth $27 billion making it the most lucrative TV deal in sports. The networks paid around 67% more than their previous deal with the NFL.

NASCAR signed a new deal in August of this year which was worth 46% more than their previous deal which was signed in 2005, but here is the kicker: since 2005, their TV ratings have gone down 47% and their admissions revenue has gone down 42%. The sport has gotten less popular yet the TV rights are skyrocketing!

The Dodgers signed a deal with Time Warner Cable that creates a brand new channel to broadcast only Dodger games. The deal is worth $7 billion, a 600% increase on their previous deal. Keep in mind, the channel’s sole purpose is to show Dodger games which begs the question: What do they show in the offseason, when the Dodgers…aren’t playing baseball?

Hockey, NASCAR, and soccer are the only major sports that ESPN doesn’t own Photo Credit

All of these new deals will either cause an increase in an existing channel’s subscription fee or add new subscription fees that didn’t exist before. ESPN is one of the biggest perpetrators — since 2006, its subscription fees have gone up 42%. In Los Angeles, residents now have one channel broadcasting Lakers games and a different channel broadcasting Dodger games. Each one of these channels will have a subscription fee around $4 each. And you wonder why analysts project the average cable bill to reach $200 by 2020?

Why hasn’t a hip, rich tech company like Google or Netflix tried to “disrupt” things like they always do? It is not as a competitive a space as one might think. Even though you have hundreds of TV channels, most of them fall under six companies: Comcast, Walt Disney, Viacom, CBS, News Corp and Time Warner. On top of that, Comcast is also a major cable provider.

Many of the sports organizations and teams also have large ownership stakes in TV networks. For example, the Big Ten owns 51% of the Big Ten Network and the Yankees a large chunk of the YES Network. Therefore, the TV networks, cable providers, and sports entities are all benefiting tremendously from this genius model — it is in their best interest to keep it alive.

Inevitably, non-sports fans will realize that they are getting totally ripped off. My favorite explanation came from a post by sports blogger Patrick Hruby: “ESPN’s business model is getting 60 percent of the country that doesn’t watch ESPN to pay 60 bucks a year to pay for ESPN.”

If anything disrupts the TV industry, it would be this: people cutting the cord with cable TV. The movement has already gained some momentum. Over a million people have gotten rid of cable in the past 12 months, almost double the number from the previous year. If that trend gets worse, it would trigger a chain reaction as costs would go up even faster to account for the lost customers. That could open the door for more alternate distribution through digital platforms like Xbox, Apple TV, and Google TV. Maybe even Netflix and YouTube will bid to buy rights directly from the leagues.We didn’t always buy music for 99 cents a song — the TV industry has to evolve over time.

Inevitably, sports will become premium content like HBO. Fans will have no choice but to bear the cost of sports on their own. Pat Doyle, the CFO of DirectTV, recently said, “We’ve got to change the dialogue. Let’s get the people that want sports to pay for sports.”

Until that happens, if you see a non-sports fans struggling to fit in at a sports bar, buy them a beer. It’s the least you can do.

Ravi does not have cable in Chile and is miserable without it. He writes about a variety of sports/business topics which can be seen here. For comments/suggestions, e-mail him at: ravidev86@gmail.com